1. Field of the Invention
This invention generally relates to automated inventory replenishment, and more specifically, to inventory management practices that consider the effects of price protection on inventory stocking decisions.
2. Background Art
Many Original Equipment Manufacturers (OEMs) sell their products through business partners such as distributors, solution integrators, or resellers. Price protection has become a standard element of contracts between an OEM and its business partners to achieve the right balance between inventory and customer service levels in supply chains with short product life-cycles and rapidly changing prices. Purchase price protection is a common feature that is used to entice customers into buying products and/or services. There are several different types of purchase price protection offered by retailers. One common form of purchase price protection includes insuring the purchase price of the product and/or service for a period of time, such as 30 or 60 days. While price protection is intended to provide business partners with an incentive to stock sufficient inventory, it often leads to overstocking resulting in higher inventory-related costs for business partners and increased price protection expenses and sales incentive costs for the OEM.
The prior art includes methods for inventory management under Vendor-Managed Inventory (VMI) contracts. However, existing VMI practices do not consider the effects of price protection on inventory stocking decisions, e.g., Fry et al. “Coordinating Production and Delivery under a (z,Z) Type VMI contract”, Manufacturing & Service Operations Management, 2005.
A vendor-managed inventory system may be based on a network environment which comprises a vendor system, a buyer system and an external network connecting the two systems. The buyer system includes a buyer server, multiple workstations and manufacturing devices, a plurality of storage locations, and a sensor device. These entities of the buyer system are connected or linked through an internal network. Each storage location stores a small quantity of production material to be consumed by one of the manufacturing devices. The sensor device monitors quantities of materials at the storage locations via the internal network. When a quantity of any material falls below a specified threshold, the sensor device triggers an alert signal. The alert signal is then transferred to the buyer server, and material requirements information is generated and transmitted to the vendor system. Afterward, the required material is delivered to the buyer's premises by the vendor. These systems, however, do not take into account the effects of price protection on inventory stocking decisions.